The flow of US financial aid for the armed forces in the fight against terrorism has officially ended because Pakistan is reportedly not forwarding any pending bill to the US. However, the two sides will discuss a new mode of anti-terror funding next year.

According to sources, the pending bill under the Coalition Support Fund (CSF) was to be submitted by the end of the year, but Pakistan is not billing the US for the expenses incurred on the war against terror.

“There are many reasons and issues, but Pakistan has not forwarded any CSF bill since May last year,” said a senior official of the defence ministry, adding that working relations between the two countries had soured after the killing of Osama bin Laden in a US raid in May 2011.

“The situation further aggravated after the Salala attack in November 2011,” he said. But, he added, old bills were currently being cleared by the US authorities.

Pakistan has submitted bills of $2.5 billion to the United States under the CSF arrangement. An amount of $1.2 billion has already been received while another $700 million is expected in the first week of January. The arrears stand at $600 million which officials believe will be the last tranche of the existing CSF arrangement.

“The US authorities have hinted that all the verified bills are being cleared. It implies that the money expected to be released on Jan 5, 2013, will be the final CSF payment,” a senior official of finance ministry said.

The CSF figures have always been an issue between the two countries because there is no counter-verification of the amount billed as the arrangement is between defence departments of the two countries.

Under the current arrangement, details of expenditures incurred by the armed forces are submitted to a desk headed by a Brigadier-rank officer in the Joint Staff Headquarters. After processing the bills as per the format provided by the US accounting authorities, the claims are forwarded directly to the US Embassy.

“The finance ministry or any other department comes in the loop when the CSF amount is disbursed in foreign exchange to the State Bank of Pakistan,” said an official of the finance ministry. “The CSF proceeds are converted into local currency and distributed at a ratio of 60 per cent to the armed forces and 40 per cent to the finance ministry for budgetary support,” he added.

However, the CSF contribution to defence is included in the annual budget of the armed forces and its CSF share is provided to the armed forces when the amount is released.

Since the existing CSF arrangement was agreed in the early 2000s but not formally signed, several departments and relevant authorities have not been included in the billing and clearing process. Besides, the outgoing arrangement also included rents and service charges for airbases outsourced to the armed forces of other countries.

Talking to reporters recently, Minister of State for Finance Saleem Mandviwala confirmed that work was in progress for signing a new CSF arrangement with the US. He said that during their recent talks both sides had agreed to reinitiate the CSF arrangement, adding that the first round of consultation on a new formula was likely to start in January when a US delegation would visit Islamabad.

“The new CSF agreement is necessary because the US will reduce its troops in Afghanistan after 2014 and need numerous supports, including logistics, for them,” Mr Mandviwala said.